Wednesday 28 September 2016

Continent barely notices UK vote as Eurozone sees growth in activity

Colm Kelpie Brexit Correspondent

Published 24/08/2016 | 02:30

The La Défense business heartland of Paris seen in the distance behind the Arc de Triomphe. France’s private sector was on the up, despite Brexit and terror attacks on France itself. Photo: Reuters
The La Défense business heartland of Paris seen in the distance behind the Arc de Triomphe. France’s private sector was on the up, despite Brexit and terror attacks on France itself. Photo: Reuters

The UK vote to pull out of the European Union has done little to derail the Eurozone economy, it seems, with activity inching up to a seven-month high this month, a new survey has shown.

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Even the French private sector received a boost - despite the terror attack in Nice and brutal killing of a priest in Normandy - with output reaching a ten-month high.

But the data for Germany was more muted, with output, new orders and employment all rising at a softer pace, according to the latest so-called flash Purchasing Managers' Index.

The data suggests that any immediate economic fallout from the Brexit vote on June 23 may be confined to the UK, and, to a lesser extent, Ireland, and has left other EU countries broadly unaffected.

Separate data in the UK showed that a weakened sterling help boost manufacturing exports, even if output in the sector softened.

Analysts will be keenly watching the Eurozone's performance in the coming months for signs that the Brexit vote may be impacting.

And there may be some poorer news on the horizon, as the PMI flash report shows that a slowing manufacturing order book growth, and a dip in services optimism, led to a weakened rate of hiring which could suggest that growth may fade in the coming months.

For August, the flash PMI rose fractionally to 53.3 from 53.2 in July.

Chris Williamson, economist at HIS Markit, which compiled the data, said the Eurozone remains on a firm path of expansion. "The August flash PMI indicates that the Eurozone remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by Brexit uncertainty," Mr Williamson said.

"While the resilience of the PMI data in August will add to the belief that the ECB will see no need for any immediate further stimulus, the weakness of the overall pace of expansion, and disappointing trends in hiring, order books, business optimism, and prices all suggest that policymakers will keep the door open for more stimulus later in the year."

The August survey reported that growth of output accelerated marginally in both manufacturing and services, with the former recording the slightly stronger pace of expansion.

An upturn in the rate of growth to the highest since last October put France - the bloc's second biggest economy - on course for its best quarter of growth so far this year.

Markit economist Jack Kennedy said the positive French data raises hopes of a pick-up in GDP growth after the stagnation recorded in the second quarter.

But France is still trailing behind Germany in terms of the overall pace of expansion, despite the latter seeing growth fall from a seven-month high in July.

Economists have cautioned that the Eurozone economic recovery is still fairly muted.

"August's slight rise in the Eurozone Composite Purchasing Managers' Index suggests that, despite shrugging off the UK's Brexit vote, economic conditions remain fairly subdued," said Stephen Brown at Capital Economics.

Irish Independent

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